Amcor Flexibles is one of the world’s largest suppliers of flexible packaging and folding carton packaging for tobacco. It has three operating divisions: Amcor Flexibles Food, Amcor Flexibles Healthcare and Amcor Rentsch. The business has approximately 7,600 co-workers, 45 plants and supplies a wide range of products to the food, beverage and healthcare markets. These products include packaging for fresh foods such as meat, fish, bread, produce and dairy, processed foods such as confectionery, snack foods, coffee and ready meals, as well as high value-added medical applications, hospital supplies, pharmaceuticals and personal care products.

FLEXIBLES GROUP

Amcor Flexibles had a strong year, with PBIT up 14.1% to €132.2 million. The Healthcare and Tobacco Packaging segments had particularly strong performances, while the Food business was impacted by a slowing economy in Europe and destocking across the supply chain in the second half of the year.

The restructuring program, Flex 1, continued to progress well and is scheduled for completion in 2009/10. The rationalisation of the extrusion sites from nine to three is in the final stages of completion and there was significant activity in the restructuring of the converting plants. This included the closure of a plant in the UK, with volumes transferred to other sites, and the successful start-up in May of a new Greenfield plant in Poland.

A second new plant in Poland, dedicated to PepsiCo for snack food products, also had an excellent start-up. This plant is a global leader in extrusion lamination technology and is well located in a high growth, low cost region. These two new plants in Poland arekey components of the strategy to increase production in Eastern Europe and Russia.

Returns, measured as PBIT over average funds employed, increased from 13.2% to 15.3%.

The business continued to deliver solid working capital performance. Average working capital to sales remained constant at 10.9% despite a particularly challenging operating environment.

Base capital expenditure was €63.1 million. Growth capital spending was €15.4 million and included spending on the flexibles packaging plant in Poland.

Significant items were €33.1 million of which €45.9 million was cash. The operating cash flow was €98.7 million.

FOOD

Amcor Flexibles Food is a pan-European business, consisting of 21 plants in 13 countries, serving all the major food segments. The business also coordinates the wider strategy for flexible food packaging across other geographical regions.

Earnings for the year were lower, primarily due to destocking of the supply chain in the second half of the year, weaker economic conditions and an adverse currency impact due to a higher euro against the British pound.

Sales were lower at €759 million (2007/08 €954 million), adversely impacted by the divestment of non strategic plants and foreign currency movement (€140 million) and lower input costs in the second half of the year.

Volumes for the continuing businesses were 5% lower, primarily due to weaker underlying demand in the second half of the year and supply chain destocking in the second and third quarters. From April, volumes have stabilised, albeit at a lower base.

Raw material costs were particularly volatile during the year. During the first three months of the year, input costs increased and these increases needed to be recovered against a backdrop of weaker economic conditions and falling oil prices. The business had good success in recovering these increases.

From the second quarter, raw material costs started to reduce. It took time for these lower costs to be reflected in finished goods and hence the benefit was not evident until well into the second half of the year.

HEALTHCARE

Amcor Flexibles Healthcare comprises flexible packaging activities in the Americas and Europe. Amcor Flexibles Healthcare is one of the leaders in flexible packaging for the medical, personal care and pharmaceutical markets. Headquartered in Chicago US, it employs over 2,200 co-workers at 16 manufacturing facilities in ten countries. In addition, the group coordinates strategy and commercial activity with Amcor’s healthcare flexible packaging activities in Asia.

A key component of the strategy for this business is to continually improve the product mix by accelerating sales growth in more technically demanding structures, focusing on enhanced protection, ease of use and high quality graphics.

The Healthcare business had a strong year with steady sales at €491 million and higher earnings. Underlying demand in the medical and pharmaceutical segments remains solid, although there has been a softening of demand from personal care customers, particularly in the promotional products segments.

Continuing success in new product development, including improved utilisation of the new gravure press in the US, resulted in earnings being higher in both Europe and the Americas.

During much of the first half, raw material costs increased, however at the end of the second quarter, there was a weakening of the raw material input costs that continued for the balance of the year. The business recovered the majority of the higher raw material costs in the first part of the year and had some benefit from the lower input costs during the balance of the year.

TOBACCO PACKAGING

Amcor Rentsch has strategic leadership of Amcor’s global tobacco packaging business and operational responsibility for the plants in Europe. The business has eight plants focused on folding cartons for tobacco products.

Sales for the year were 7.5% higher at €328 million and earnings were significantly higher. Volumes in the tobacco packaging business have remained strong, particularly in the fourth quarter of the year.

The business benefited from a number of initiatives undertaken in the 2007/08 year. These included:

• The installation of a new printing press at the plant in Russia. The new press commenced operations in July 2008 and by the end of August 2008, had moved to full production capacity;
• A new hot foil stamping machine in Russia that has increased the capability to provide local supply for complex and innovative products;
• A new offset machine for the plant in Poland, which commenced operations in February 2008, and has enabled the plant to meet the growing demand for short run volumes. During 2008, the plant also installed additional cutting and creasing equipment to improve manufacturing efficiency; and
• A new plant in the Ukraine which commenced operations in March 2008. The plant has steadily increased production and there continues to be opportunities for further growth in this market.

As a result of the above investments, there has been considerable improvement in operating efficiency as production has been better balanced across the manufacturing footprint and outsourcing to third parties has been eliminated.

The business has also benefited from the ongoing trend towards producing more value-add products, particularly in Eastern Europe and Russia.

OUTLOOK

In the 2008/09 year, the flexibles business benefited from lower resin prices in the second half of the year. As contract re-pricing occurs, these lower input costs will be passed on to customers and therefore, in 2009/10, the benefit from lower resin costs will not be repeated. Economic conditions also weakened through the year and the run rate entering the 2009/10 year is below the start of the 2008/09 year, hence volumes in the first half of the current year are likely to be lower than the first half of 2008/09.

Within the tobacco packaging business, volumes in the fourth quarter were particularly strong. This resulted in customer orders being brought forward, particularly in the higher value-add packaging. These higher volumes have not continued into the current year.

The restructuring program, Flex 1, delivered benefits during the 2008/09 year and these are expected to increase in 2009/10, which will help mitigate the combined impacts of slower economic activity and the absence of benefits from lower resin costs.